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11/22/2011

Lifting the Tariff

According to Bloomberg, after years of delay the US and South Korea are initiating a free-trade agreement beginning in January.

Yim Eun Young, an analyist with Dongbu Securities Co. suggested, "The traded deal will help expedite Korean car-parts makers' efforts to increase overseas orders as the tariff removal will give them a competative edge".

What effects will the free-trade agreement have on US automakers domestically? What gaming strategy should GM and other US automakers take?

5 comments:

With the absence of tariffs in lieu of this new free-trade agreement it will be interesting to see which path the automakers take. They'll save money by not paying the tariffs but will this savings be put back into the quality of their products? Of course it depends upon the entire automobile industry, but the pessimist in me wants to say they'll take the savings and make no improvements to their products. It seems a firm, GM, Ford or any other US producer, could put the savings back into improving their products with hopes of adding value in the future when their competitors parts and vehicles are failing. Such a move might draw criticism at first but could pay larger dividends in the future leaving US automakers in a more dominant position then they are currently in.

I tend to think the potential savings are low, compared to the amounts lost due to constraints on optimal decision-making that automakers face (contracts they're locked into, regulations they have to meet, etc.).

I agree with Aaron’s pessimistic opinion. I do not believe that the money saved will be reinvested into producing better and more efficient products. However, I do feel that the general opinion for most consumers is that foreign made cars last longer. I am no expert in the field of mechanics this is simply my observation and what others share with me. I do have a brother that works at a local mechanic shop and he recently bought a Hyundai. I asked him why he bought that vehicle and he told me that Hyundai’s are the vehicles that he sees the fewest of in the shop. Again I do agree with Aaron that the money saved will probably not be put into making better cars from Korea, but I do not feel that Hyundai currently sees the need to invest more money in R&D.